Speculation from a NYC venture capitalist

Tag Archives: Twitter

For the past decade, business on the Web has focused on driving usage and user base independent of a clear financial model. Charging for products or services with utility was anathema to the cause of driving user adoption. Systems were designed to create as much “automation” as possible to allow for massive scalability with minimal cost. And given the Web as a new medium, those strategies made a ton of sense.

With viral loops and massive usage, services like Facebook and Twitter were able to create fundamental platform businesses that took the connectivity of the Internet and created “connections”. The goal to drive audiences brought content walled gardens down, and drove a whole new generation of folks to the Web. Automated activities like user generated content and self service models became the hallmarks of success. Get other people to create site connect or sign up for a service, and make money off of their effort. No better business right? Those mantras created a stark positive value proposition and led to a huge critical mass of online activity.

But the world of usage, automation and free has some collateral effects. Given how easy it is to start a site or a service, we now also have a world of noise. People are dealing with the problem of excess. Spam email, offers, products, content, tweets, updates – you name it, almost every category has infinite shelf space competing for finite attention.

That is part of the reason why I see the pendulum shifting again towards simplification, organization, and curation. Paid content walls are going up again, as businesses identify customers out of the masses willing to pay for content with cost and create unique ways of interacting with content. It’s not that the same perspective or content isn’t available for free somewhere on the Web, it’s that people don’t have to time to sift through and find all of it. The same is true for products and services. We’ve seen a number of businesses growing rapidly whose primary value proposition is not showing customers 1000s of SKUs, but a few really good options. And automation? Perhaps not fully. Virtual call centers, email communication, on demand conversations all seem to be getting layered back into the equation. Of course this will all be done in a much more efficient and productive way than ever before, but it seems to me the human touch is fighting its way back into dogma of long tail and free.

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Many have written about the rise of highly capital efficient companies, the growth of SaaS, the penetration of technology into the SMB community, and the new requirement to deliver value to customers at the time of purchase. Each of these strategies has radically altered the sales process. No longer are armies of sales people sitting in customers’ offices or spending endless hours over dinner trying to forge relationships they can lean on in the sales process. Instead, customers are “pulling” solutions they are interested in, trying them out for free early on, and selecting products that meet their needs. If the best way to do sales is to have customers “declare” their interest, then one needs an exceptionally broad funnel to ensure productive sales activity.

As a result, marketing in this new era is undergoing a rapid transformation. Marketing is no longer about softer concepts like brand building and trade shows; no longer simply providing the appropriate message and collateral for the sales organization; no longer sitting with industry analysts, hoping for positive coverage. Instead, it has become a much more active, tactical, and quantitative function. Done right, it becomes a highly integrated and critical part of the overall funnel.

The next generation of marketing leaders will be fluent in online acquisition channels and implementing a real time, transparent, measurable system. The areas of spend are highly fragmented: SEO, SEM, Email Marketing, Affiliate, Social Media, Community, Video, and on and on, balanced with the traditional channels of PR, magazine and trade shows. Quantifying cost per lead, customer acquisition costs, conversion rates, and value per customer across each of these channels requires significant discipline. Architecting follow up in a highly automated manner and driving to increasing levels of qualification becomes key. Webinars, emails, and free trials are scalable ways to move potential customers along and require minimal touch. Site activity, logins, and usage inform how much deeper customers are getting.

The challenge is that many of these channels have only been around for a few years at most. At FirstMark Capital, we are trying to support our CMOs make the transition by sharing the nuggets of best practices across our portfolio. Luckily, via companies like Clickable, Conductor, and others, we have some of the leaders in these areas within the portfolio. We are also organizing an annual Online Marketing Bootcamp for our portfolio companies and friends of the firm to augment organic knowledge with leading experts in the field.

If you are one of these types of CMOs, we’d love to hear from you. We have lots of places you can be used! :)

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Lots of chatter about Twitter being offered $500MM by Facebook.Some think Twitter is crazy not to take it, while many others correctly point out that $500MM is not $500MM if it’s in stock.While Facebook may hold out the Microsoft $15 billion valuation (an artificial auction given how strategically important the advertising deal was to Microsoft, not to mention that they received preferred stock), my discussions with a number of people tell me Facebook common stock has been trading hands at somewhere between $3 and $4 billion in value.If you’re Twitter, that’s the difference between owning 3% of Facebook and 12.5%.That’s a huge difference in ownership when it comes to upside!

Facebook is an unbelievable social hub, where casual communications amongst friends are mainstay.Facebook has also been incredibly successful with mobile usage.There are over 15 million active users of Facebook Mobile, growing over 300% from last year!By comparison, Twitter “only” has 6 million active users of the product.If Facebook is the dominant player in casual communications and has an incredibly strong product in the Mobile space, why would it make a “buy” decision versus a “build” one?

I think Facebook is looking to take advantage of this downturn in the economy to become the largest social network and communications hub out there.It turned down some huge offers to stay independent.There’s no turning back now.Twitter is the poster child “Web 2.0” company – incredible usage, no revenues.If Facebook could get Twitter for a reasonable price (ie, selling them on a $15 billion valuation), they could clearly capitalize on Twitter’s market momentum.Pick up a viral service that has got a high degree of overlap with your own users, and use the integrated service to draw everyone else from Facebook onto the service.Even if they don’t buy Twitter, Facebook must be working on some sort of SMS-based Twitter-like feature.They might even add a Loopt style service alongside the same platform.Extrapolating from the chart below, text messaging is a very important communications medium for Facebook’s core audience, and clearly offering a full feature set would rank high in ensuring Facebook’s dialogue with their core audiences.

Looking at the chart above also provides some hint as to where Facebook might be headed next.In my mind, the next most obvious place for them to go is email.While younger kids view email as the “formal” way of communicating with adults, its usage is uniform across age demographics (see below).And we all know how incredibly sticky email addresses are.Yahoo! has over 260 million users of its email service, and AOL has long maintained audiences with its legacy email accounts.Gmail by Google, while growing, is a surprising distant follower.I’d bet many of the younger users of Facebook would easily use an “@facebook” account, or any separate brand Facebook might come up with, especially if it was appropriately integrated into their social messaging platform.Facebook might even do something really interesting by providing POP access to its social messages to drive adoption.Putting aside the details of how Facebook sorts/presents email from chat or social messages, it would seem like a great way to start building an organic presence in email for a huge audience you control.

Other possibilities could be expanding Facebook’s chat platform.While they have their own internal chat function, why not approach Meebo or eBuddy to acquire their tens of millions of interoperable IM users.Like Twitter, they likely share attributes of “high usage, light revenues”.In addition, Facebook could launch a VoIP based voice service that it embeds into their chat platform and their smart phone mobile applications.

Imagine the converged communications possibilities.Facebook would have the SMS market cornered via Twitter or its own offering, it could have not only the internal usage of their Chat application but also corner interoperable IM services via acquisition, it could have users starting their sticky email “lives” with the launch of @Facebook/ @nameyourbrand so users can communicate with all those “adults” outside the Facebook ecosystem, it could have applications messaging enabled by the open Facebook platform, and it could have voice (VoIP) services embedded via the web and the downloadable mobile app.While pure speculation on my part, one can see how the innocent Twitter play could be one small step towards Facebook aggressively trying to converge our messaging platforms.